Although it is still way too early to be calling a top here, at some point this uptrend in the market will weaken, consolidate and probably reverse its trend. Or, it just may reverse back down sharply due to events or technical factors. Whatever the case, I behooves me to start taking a look at my stocks with that eventuality in mind.

I divide my holdings into three groups:

1. Stalwarts

These are the stocks that are exhibiting strong price action, relative strength, good demand and fundamentally, are sound companies—-leaders in their markets and industry. They’re going up and I’m banking coin.

These are also stocks that demonstrate above average resiliency during market declines…the ones that end up bouncing back after getting hammered. Part of it may be due to institutional sponsorship and  part of it may be due to it being a hot issue with the trading community.

Take a look at some of the stocks you own (if you tend to own them more than just a week) and see what they did since October. Did they decline more than the market? Their peers?

Did they actually increase in value during that period? If they did, these are the ones you might want to hold over a longer time frame. I’ve found that you’ve got to accept a certain level of volatility to be successful at making money in the stock market. Otherwise, you end up trading, picking up nickels and dimes here and there (not that there’s anything wrong with that).

Regardless, stalwarts are stocks that I want to hold for the longer term, even through a down market cycle. The reason being,  is that I don’t know when these stocks will turn around and recover to new highs. They are stocks I want to own, however. I don’t want to get left behind in the dust, sitting there holding cash after selling them, and watching them go higher, having to make a decision when to get back in, when I could have been in the position all along.

In the midst of a downturn, I can also use weakness to add to the positions. One way I like to do this is to look for a reversal back into X’s (demand) on the PnF chart after a long column of O’s (supply).

2. Short term trades

These are exactly just that. They get the axe or I pull the trigger and sell them when it looks like they are starting to reverse direction. I don’t worry about trying to pick the tops. I can’t anyway. All I want to do is make a short term profit in them and get out and move on.

3. Laggards–

These are those stocks we all own that, for some reason, haven’t lived up to our expectations. For whatever reason, they are the problem children with ADD. They trail their peer group and show weak relative strength in relation to the market. They’re like the kids I picked on in junior high gym class. But that’s another story…

As a rule, when the market moves higher and starts to leave them in the dust, I start selling part or all of my position in them. There is no hope for the weak. These get sold, just like they are in the short term trade group, at the slightest sign of a crack in the uptrend.

Going short has always been hard for me to time. Generally, what I prefer to do during a downturn is hedge my stalwarts using options or inverse ETFs.

I have been organizing things here as of late, even with my most recent purchases. There is no telling when this upturn will reverse, and I need to be ready to take action when the time comes.

Disclaimer: This information is not intended to be used as the primary basis of investment decisions.  Because of individual investors requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. Consult your financial advisor prior to taking any actions. The information and opinions contained here are those of the author and are not necessarily the same as those of iBankCoin, its principals or its affiliates. The author may have a position in one or more stocks mentioned here. Trade at your own risk.